Donate to Remove ads

Got a credit card? use our Credit Card & Finance Calculators

Thanks to servodude,tjh290633,csearle,jfgw,bionichamster, for Donating to support the site

Co-Op Bank 5.125% Bonds 2017

Clitheroekid
Lemon Quarter
Posts: 1685
Joined: November 6th, 2016, 9:58 pm
Has thanked: 633 times
Been thanked: 1500 times

Co-Op Bank 5.125% Bonds 2017

#41388

Postby Clitheroekid » March 25th, 2017, 11:19 pm

The first thing I should say is that I have never had any involvement in bonds, so please forgive me if this is a naive or stupid post.

I came across these bonds earlier, which appear to be trading at about £82. As they are due for redemption in September at £100 this gives a gross return of over 50%, assuming payment is actually forthcoming.

I realise that the bank is in a mess, but can anyone more knowledgeable than me (i.e. virtually all readers of this board!) comment as to whether there really is a 50% chance of the bonds not being repaid, which the price would seem to imply?

Alaric
Lemon Quarter
Posts: 3554
Joined: November 5th, 2016, 9:05 am
Has thanked: 13 times
Been thanked: 705 times

Re: Co-Op Bank 5.125% Bonds 2017

#41396

Postby Alaric » March 26th, 2017, 12:17 am

Clitheroekid wrote:I realise that the bank is in a mess, but can anyone more knowledgeable than me (i.e. virtually all readers of this board!) comment as to whether there really is a 50% chance of the bonds not being repaid, which the price would seem to imply?


A google search reveals the minimum investment is £ 50,000
http://www.fixedincomeinvestor.co.uk/x/ ... -bond-77uq

That could indicate there isn't actually a buyer's market and the price is for sellers.

Hargreaves have it at a redemption yield of 50% but a spread between 80 and 85.
http://www.hl.co.uk/shares/shares-searc ... bonds-2017

It's certainly priced as if some form of default is plausible to likely. It's probably wrong to think of it as a 50% return. Really if you buy at 85, you are hoping they will repay at 100. So that's a 15% return plus the final coupon, admittedly over a short time period. I think it's one for the "rich" (minimum £ 50,000 nominal) and not risk adverse.

UncleEbenezer
Lemon Quarter
Posts: 3767
Joined: November 4th, 2016, 8:17 pm
Has thanked: 420 times
Been thanked: 621 times

Re: Co-Op Bank 5.125% Bonds 2017

#41403

Postby UncleEbenezer » March 26th, 2017, 12:56 am

Interesting indeed.

From my hopelessly naive viewpoint, I'd say that appears to be priced for a 20% haircut. Whereas some of the other Coop bonds are priced much higher. Is there a reason short-dated senior bonds should be in trouble without longer-dated ones also suffering?

johnhemming
Lemon Quarter
Posts: 2029
Joined: November 8th, 2016, 7:13 pm
Has thanked: 4 times
Been thanked: 174 times

Re: Co-Op Bank 5.125% Bonds 2017

#41413

Postby johnhemming » March 26th, 2017, 7:32 am

Some are issued by the group, some are issued by the bank. There are press stories about the bank having a debt for equity swap. The group is a separate legal entity.

Dod1010
Lemon Quarter
Posts: 1058
Joined: November 4th, 2016, 10:18 am
Has thanked: 20 times
Been thanked: 164 times

Re: Co-Op Bank 5.125% Bonds 2017

#41416

Postby Dod1010 » March 26th, 2017, 7:46 am

85 to 100 is actually 17.5% but never mind. I doubt that CK is the only one to have spotted this and so there must be a very good reason fro the anomaly. 6/7 months is a long time in the life of a mess like the Co-op Bank and as someone said, it is probable that some form of reconstruction is in the offing, probably to the detriment of the bond holders.

Stay well clear unless you really think you know what you are doing!

Dod

Alaric
Lemon Quarter
Posts: 3554
Joined: November 5th, 2016, 9:05 am
Has thanked: 13 times
Been thanked: 705 times

Re: Co-Op Bank 5.125% Bonds 2017

#41424

Postby Alaric » March 26th, 2017, 9:57 am

UncleEbenezer wrote: Is there a reason short-dated senior bonds should be in trouble without longer-dated ones also suffering?


For the longer dated bonds, they only have to finance the coupon payments. For a short dated bond, they are going to have to find the principal, or perhaps offer an equity swop, as others suggested.

There are "hedge" funds that specialise in this sort of thing. Look for "distressed debt" in descriptions of where they invest.

johnhemming
Lemon Quarter
Posts: 2029
Joined: November 8th, 2016, 7:13 pm
Has thanked: 4 times
Been thanked: 174 times

Re: Co-Op Bank 5.125% Bonds 2017

#41428

Postby johnhemming » March 26th, 2017, 10:15 am

The biggest issue is that there are different legal entities. If they had different names (beyond the difference between Group and Bank) then people would not respond to bad news on the one in selling the other in the way that they do. To be fair I think the group still has a holding in the bank so there is a form of relationship, but it is the groups trading position that is key for the group bonds.

On the interims they were marginally profitable.
https://assets.contentful.com/5ywmq6647 ... b_2016.pdf

This comprises a write down of £45m on our investment in The Co-operative Bank which we have valued at £140m,

Total equity, however, is above 3bn. Hence if they write down the interest in the bank to zero it should not impact the group in a sense which makes insolvency likely. There is, obviously, a question as to whether the interrelationship between two previously connected parties is giving misleading figures, but I have no knowledge about the answer to that. I don't personally think it is sufficiently important even if it is true which it may not be.

Alaric
Lemon Quarter
Posts: 3554
Joined: November 5th, 2016, 9:05 am
Has thanked: 13 times
Been thanked: 705 times

Re: Co-Op Bank 5.125% Bonds 2017

#41430

Postby Alaric » March 26th, 2017, 10:20 am

There's an article in the Telegraph which gives some of the background.

http://www.telegraph.co.uk/business/201 ... interests/

A restructure may be on the cards.

hiriskpaul
Lemon Quarter
Posts: 1558
Joined: November 4th, 2016, 1:04 pm
Has thanked: 47 times
Been thanked: 348 times

Re: Co-Op Bank 5.125% Bonds 2017

#41431

Postby hiriskpaul » March 26th, 2017, 10:20 am

Clitheroekid wrote:The first thing I should say is that I have never had any involvement in bonds, so please forgive me if this is a naive or stupid post.

I came across these bonds earlier, which appear to be trading at about £82. As they are due for redemption in September at £100 this gives a gross return of over 50%, assuming payment is actually forthcoming.

I realise that the bank is in a mess, but can anyone more knowledgeable than me (i.e. virtually all readers of this board!) comment as to whether there really is a 50% chance of the bonds not being repaid, which the price would seem to imply?


I would advise extreme caution. To cut a long story short, the PRA have told the bank to raise CET1 capital. The existing shareholders have refused to step up to the plate so new owners are being sought. If that fails there is a strong possibility that these bonds will be converted to equity (unlisted equity) - the PRA have powers to enforce that even if bondholders refuse to cooperate.

I have quite a significant position, unfortunately.
Last edited by hiriskpaul on March 26th, 2017, 10:25 am, edited 1 time in total.

hiriskpaul
Lemon Quarter
Posts: 1558
Joined: November 4th, 2016, 1:04 pm
Has thanked: 47 times
Been thanked: 348 times

Re: Co-Op Bank 5.125% Bonds 2017

#41435

Postby hiriskpaul » March 26th, 2017, 10:23 am

Alaric wrote:
UncleEbenezer wrote: Is there a reason short-dated senior bonds should be in trouble without longer-dated ones also suffering?


For the longer dated bonds, they only have to finance the coupon payments. For a short dated bond, they are going to have to find the principal, or perhaps offer an equity swop, as others suggested.

There are "hedge" funds that specialise in this sort of thing. Look for "distressed debt" in descriptions of where they invest.

The longer dated bonds, which are also subordinated, are actually trading lower than the 2017s, despite the higher coupons.

Actually, I suspect that UncleEbenezer is talking about the Co-op Group bonds, rather than those issued by the bank. These are priced much higher, above par for the 11% 2025, but are not at risk from the bank's shortage of CET1.
Last edited by hiriskpaul on March 26th, 2017, 10:36 am, edited 1 time in total.

UncleEbenezer
Lemon Quarter
Posts: 3767
Joined: November 4th, 2016, 8:17 pm
Has thanked: 420 times
Been thanked: 621 times

Re: Co-Op Bank 5.125% Bonds 2017

#41437

Postby UncleEbenezer » March 26th, 2017, 10:30 am

hiriskpaul wrote:
UncleEbenezer wrote: Is there a reason short-dated senior bonds should be in trouble without longer-dated ones also suffering?

The longer dated bonds, which are also subordinated, are actually trading lower than the 2017s, despite the higher coupons.

My question was actually in the light of the adjacent thread: Co-op Group 11% 2025 (42TE). I had looked that up, and the price didn't look distressed, just down a little from peak.

That question has been answered: Group vs Bank. This being a board labelled "Banking sector", one and perhaps both of these threads might perhaps be considered misplaced.

johnhemming
Lemon Quarter
Posts: 2029
Joined: November 8th, 2016, 7:13 pm
Has thanked: 4 times
Been thanked: 174 times

Re: Co-Op Bank 5.125% Bonds 2017

#41438

Postby johnhemming » March 26th, 2017, 10:43 am

UncleEbenezer wrote:That question has been answered: Group vs Bank. This being a board labelled "Banking sector", one and perhaps both of these threads might perhaps be considered misplaced.

The issue of the bonds is quite closely associated with the old TMF banking board as it was Mark Taber (aka OBR) who organised the campaign about the creation of these bonds following the difficulties in the bank. To some extent there are aspects of all fixed interest private sector bonds which are common and where often discussed in the banking board of TMF.

Alaric
Lemon Quarter
Posts: 3554
Joined: November 5th, 2016, 9:05 am
Has thanked: 13 times
Been thanked: 705 times

Re: Co-Op Bank 5.125% Bonds 2017

#41442

Postby Alaric » March 26th, 2017, 10:53 am

johnhemming wrote: To some extent there are aspects of all fixed interest private sector bonds which are common and where often discussed in the banking board of TMF.


The other thread viewtopic.php?p=2147#p2147 gives more insight into why the 2017 bond is priced the way it is. LME is the three letter abbreviation, standing for "Liability Management Exercise".


Return to “Banking Sector”

Who is online

Users browsing this forum: No registered users and 0 guests